Unstructured Finance

Once again, the soy complex — in particular soybeans and soybean oil — dominated the moves in Chicago ag markets this week, moving in line with soaring Asian vegetable oil markets. “The world markets have come to forefront this week. We are going to be very nervous with the tight stocks and particularly the inflation situation in China, Europe and the United States,” said Gordon Linn, president of The Linn Group in Chicago.
Many Chicago traders expected a correction in soy prices this week. But the Asian vegetable oil markets were red hot as demand for edible oils to meet food and fuel demand is escalating. Malaysian palm oil futures hit a nine-year high and the spot Chicago soyoil price pushed to near a 23-year top this week.
Asia’s appetites tend to dazzle CBOT trading pits. There was talk among traders that China, India and Bangladesh bought huge amounts of soybean oil, roughly 150,000 tonnes, mainly out of Argentina, and that China also bought canola and rapeseed.
Traders also continue watching U.S. Midwest weather as this is the time of year when any change in a forecast can move prices. One of Chicago traders’ favorite forecasters to watch is WGN’s Tom Skilling, a respected weather wonk whose noon updates are on TV’s all over the grain floor.
Skilling on Friday had rain moving into the eastern U.S. Midwest which has been dry. If good rains move through, it should spell selling early next week, especially in corn.
CBOT corn prices have been range-bound the past month as current estimates are projecting U.S. farmers to harvest their biggest crop in history — 13 billion bushels — if all goes well this summer.
The government gave the corn crop high marks in its first ratings report of the year, grading 78 percent in good to excellent condition last Monday. USDA will update its ratings on Tuesday after the Memorial Day holiday, with traders expecting corn ratings to stay steady or drop slightly.
But there’s a lot of time until October harvest so volatility is sure to pick up during what is expected to be the long hot summer.
Wheat was on roll this week as worries about a tight global stockpile rallied prices. A combination of dryness in Europe and excessively wet weather in the key U.S. wheat state of Kansas has analysts shaving the world’s crop output.
The same inputs will be watched next week: Asian vegetable oil markets, U.S. Midwest weather, crop condition ratings and European weather. It seemed that veteran grain traders had more on their minds that price volatility. They watched their shares of CBOT climb over $200 this month as the Chicago Mercantile Exchange and the IntercontinentalExchange Inc. wrangle over who will buy them. Next week should be telling as ICE’s CEO Jeffrey Sprecher will meet with CBOT members on May 31.

Cash is king when it comes to graduation gifts, a new survey shows.
Americans will spend a total of about $4.5 billion on high school and college graduation presents this year, with almost 59 percent of those gifts coming in the form of cash, according to a survey from the National Retail Federation. Gift cards are next at 31.3 percent, with electronics at 11.5 percent and apparel at 9.1 percent, the survey said.
One-third of Americans plan to buy graduation gifts this year, the survey said.
“Retailers can expect to see a nice bump in sales later this summer as students redeem gift cards and make big purchases with graduation money,” National Retail Federation President and Chief Executive Tracy Mullin said in a news release.BIGresearch, a consumer market intelligence firm, conducted the survey of 8,353 consumers and the survey has a margin of error of plus or minus 1 percent.
So is it really “all about the Benjamins” at graduation? Not at all. It’s more like “all about a couple of Alexanders and a couple of Abrahams.” The average consumer buying graduation gifts will spend about $51.05 on each present, according to the survey.

Prospects for increased soybean oil demand due to the biodiesel boom along with a rally in gasoline and crude oil prices on supply worries sent Chicago Board of Trade soybean and soyoil markets to multi-year highs this week.
Given the rally some traders expected soy prices to set back a little early next week, especially after trade data from the Commodity Futures Trading Commission confirmed that commodity funds expanded their net long positions in both.
“The market had a little bit of stall out. We’re going to have to watch that next week,” Don Roose, analyst with U.S. Commodities, said of beans and oil. “You could see a break if we get rain in the eastern Corn Belt.”
Rain in the Midwest could keep farmers from wrapping up corn planting, which could cause some intended corn acres to be switched over to soybeans, which have a shorter growing season than corn.
CBOT traders are also watching the CBOT July/September corn spread, an old-crop/new-crop bet that turned volatile this week. July corn is now trading at a 2-cent premium to September — spooking many to exit their July positions. The strength in the July/Sept spread coincided with strong cash markets.
Ethanol manufacturers, feedlots, processors and other end-users are fighting for corn, having problems originating supplies as farmers have stopped selling with the focus on planting.
“Because of that, it is sucking corn away from the river and making the Gulf hard to originate too” for export obligations, Roy Huckabay, analyst with The Linn Group, said of barge loading elevators on the Illinois and Mississippi rivers.
All that said, weather will continue to be a prime daily mover for the markets. Traders are turning their focus to growing conditions and less on planting progress. But parts of the western Corn Belt are still well behind on seedings due to all the rain they’ve had this spring.
On the wheat front, traders were watching world weather: welcome rains fell in Australia this week but dryness in China is still a worry, with outlooks for tight world stocks into next year. Talks with India this week have renewed hopes for U.S. wheat sales this year but there’s also the coming U.S. hard red winter wheat harvest next month, which tends to be a seasonal downer for prices.

Wal-Mart reported an 8.1 percent rise in first-quarter earnings on Tuesday, but the world’s largest retailer was cautious on its view for the second quarter.
Reuters talked to Wal-Mart CFO Tom Schoewe about the retailer’s results and how its shoppers are holding up in the face of rising gasoline and food prices, and a slowing housing market.
Here is an excerpt from the interview:

Reuters: What is your view on your how your shoppers are digesting the higher gasoline prices? What did you learn last summer with your shoppers facing such high gasoline prices now that it looks like we’re heading for the same thing again this summer?

Schoewe: Clearly our customer is feeling the crunch and I think what we ought to do is think about this…so often we think about this analytically. We’ll say what is the gas price today and how does that compare to a year ago? Well analytically –that’s interesting. But for the individual that’s living paycheck to paycheck, they don’t care what gas prices were a year ago. The fact that the prices today might be something close to what they were a year ago is meaningless.
What’s far more meaningful in my opinion is the slope of the line — the fact that gas prices are up and continue to go up and every single time they pull in to fill up their tank, that’s pulling disposable income out of their pocket. For a customer that’s living paycheck to paycheck — that’s an important customer for us — that clearly has an impact on our business.

There’s nothing like perceived changes in the weather to stir a little buying interest in corn.
Even though the week ended May 4 was pretty clear in the Corn Belt for planting corn, calls for rain next week sent shivers through the market — sparking fresh buying.
To assure maturity before the autumn frost, Midwest farmers try to get all their corn planted by May 15. This year’s seedings are projected as the most in 60 years, fed by the rampage toward biofuels like corn-based ethanol.
Cold, rainy weather has kept farmers in the Midwest far behind on corn, however. Even with clear weather and 32-row planters, farmers still lag.
CBOT floor traders on Friday said they expect only 50 percent of the corn crop will be planted by the weekend, down from the usual 64 percent for the first week in May. The government will provide its weekly number on Monday afternoon.
Fewer corn acres usually means more soybeans, which are planted after corn with a shorter growing season. So, as one would expect, the corn scenario fed CBOT soybean sales.
It bears repeating: the weather is pretty much the only factor CBOT traders are looking at until mid-May. So if corn prices spike around midday, it will tell you that updated weather outlooks are still wet for the Midwest.
“There are still fears that if we don’t plant the corn, then we’ll plant more beans. We’re in that time of year when we’re trying to sort out a big issue — and that’s acres,” said Don Roose, president of Iowa brokerage U.S. Commodities.
The wheat market took a big hit this week as this year’s winter wheat crop seemed to jump out of its coffin.Scouts on their annual field inspections of Kansas, the top wheat state, said that overall this year’s crop looked better than expected despite a hard spring freeze. They projected a bigger crop than last year’s annual tour.
Traders on Friday will be watching for the government’s first first crop projection for 2007 U.S. winter wheat. So far, analysts expect gains — about 300 million bushels more than last year’s crop.
An interesting detail to watch will be what effect all the rain in the central and southern Plains may have on the hard red winter wheat grown there. Warm, wet weather raises the risk of fungal diseases that can potentially ruin quality.

–Commodity Futures Trading Commission commitments of traders data on May 4 showed that funds remained net short in CBOT wheat futures but expanded their longs in corn, soybeans, soyoil and soymeal. All that was as expected. Some said the corn fund long might be a little bigger than expected. If weekend weather forecasts for next week get drier, that fund long could add corn selling pressure on electronic screens on Sunday night or in the pit on Monday morning.

Blockbuster Inc. on Wednesday reported a wider-than-expected loss in the first quarter as the No. 1 U.S. rental chain hikes spending to grab online rental subscribers from rival Netflix Inc.
Blockbuster and other in-store movie rental chains have been hurt by falling rental revenues over the past two years, leading Chairman and Chief Executive John Antioco to cut the company’s U.S. store base, divest non-performing international assets and look to next-generation movie distribution systems for growth.
Antioco announced recently that he is leaving Blockbuster after nearly a decade at its helm and says he plans to leave the company on track to dominate online rental before he goes.
Here is an excerpt of Reuters post-earnings interview with Antioco:

Q: Blockbuster and its store-based rival Movie Gallery Inc. have been closing stores for nearly two years now but in-store rental revenue fell 10 percent industrywide last quarter. When will the store base shrink enough to be the right size for demand?

A: The problem is there are too many (stores). (The store base) has not compressed as much as overall revenue. We think the rate of store closings will have to increase and … I was kind of hoping that it would be in 2007 that capacity shrinkage would meet the overall revenue decline.
Our number-one store competitor got a reprieve and was able to redo their bank deal and put off consolidation. I clearly see it at least in the first quarter of 2008.

Q: It was surprising to see Blockbuster announce that it is opening a movie theater in Mexico after selling off of international and gaming businesses. Are there plans to expand into exhibition?

A: It’s really a branding license and an operating agreement. Some investors in Mexico wanted to use Blockbuster branding in the theater. They thought it could create a branding difference and they wanted to rely on our retail operating expertise to operate the theater. Call it an experiment.

Q: Last quarter you said that Total Access was costing Blockbuster about $2 per subscriber. Is that still the case?

A: The way we get to that is you take the number of subscriber months, you then determine the total product costs of Total Access and add back the revenues that people are spending with us when they exchange movies and basically on average the debt cost is about $2 per subscriber.

Q: You said that there were no plans to change prices on the program. What is the time frame on that?

A: Specifically, we have no plans of changing the program. What we want to do is go into 2008 with as many subscribers as possible and continue through the course of 2007 to refine our model, sell subscribers more stuff and the focus is on that as opposed to raising prices immediately.
The online rental market is projected to grow at 40 percent plus this year. It’s a land grab and we need to take advantage of…Total Access.

Q: There were rumors that you were in talks to take over Movielink and you said today that you are still planning to have a movie downloading solution this year. What’s going on with that?

A: That is a business we need to get into. We continue to look at and study what is the best way to enter that business — is it through acquisition, partnership or building a partnership for ourselves? The discussions around acquisition revolve around price and technology. Clearly we want to get into it before it starts ramping up at any kind of rate … I think by the end of this year we should enter the business.

Q: Analyst have said that they aren’t concerned with Blockbuster’s spending on Total Access as long as the company turns a profit by the end of the year. What do you think about that?

A: I understand it and I think clearly we wouldn’t be growing this business if we didn’t think we could make a profit on it and I think (their) expectation are reasonable. The fourth quarter of the year is a huge growth quarter for the industry… by the time we hit that fourth quarter will obviously start to approach our goal for subscribers for the year and will start to take a look at that.

Q: How is the movie title slate shaping up for the rest of the year?

A: The second quarter is down, the third quarter is way up.

Q: Have you thought about what you’re going to do after you leave Blockbuster at the end of the year?

A: I don’t have any specific plans now. I’m just focusing on the business.